HUD's contractor found $10.5M in bad payments. It collected $0.
Summary
The Department of Housing and Urban Development pays a contractor to review every foreclosure claim settled without HUD taking the property -- a program called Claims Without Conveyance of Title. That contractor flagged $10.5 million in improper payments to lenders over two years, [HUD's own Inspector General found](https://www.oversight.gov/sites/default/files/documents/reports/2026-05/2026-KC-0004_508.pdf). HUD never sent a single demand for repayment. Leadership had ordered the collection process started in 2021; four years later, a handful of test letters went out, then the whole effort was paused again.
A contractor whose whole job is finding this
-- the Federal Housing Administration, the division that insures mortgages so lenders bear less default risk -- has insured more than 50 million home loans since 1934. When a CWCOT claim is filed and paid, the MCM contractor is contractually required to review it for five things: the appraised value used, the auction fee charged, the winning bid amount, unrepaired property damage, and the appraisal itself. If the paperwork doesn't support what paid the lender, the contract requires the MCM to pursue an administrative remedy⧉ -- a formal demand that the lender repay . That is the entire point of paying for the review.
View data as table
| Property preservation & protection costs | 5,673,474 |
|---|---|
| Incorrect CAFMV calculation | 2,456,294 |
| Unrepaired surchargeable damage | 2,350,444 |
| Auction fee overbilled | 31,062 |
Where the money hid
Of the $10.5 million, $4.8 million came from findings squarely inside the MCM's contract⧉ -- wrong property valuations, overbilled auction fees, unrepaired damage nobody charged the lender for. The other $5.7 million -- 72% of every finding the contractor made -- was property-preservation and protection overcharges that 's own contracting officer told the MCM to start flagging in March 2023, but that never actually wrote into the MCM's contract. A third bucket, 231 findings tied to bad appraisals, never got a dollar figure attached at all: gave the contractor no guidance on how to price those violations, so they were never billed to anyone.
View data as table
| No supporting documentation obtainable | 61 |
|---|---|
| Fully documented and validated | 17 |
The audit's own sampling ran into the same wall. picked 78 CWCOT cases to independently check the contractor's math -- and couldn't get supporting paperwork for 61 of them, either because the finding fell outside the MCM's contract scope or because itself couldn't produce it. That meant couldn't statistically extrapolate its results to the full universe of findings the way these audits normally do. The 17 cases it could fully verify showed no problems, which is why still trusted the contractor's underlying $10.5 million figure -- it just couldn't independently confirm how much of the broader improper-payment picture the sample represented.
Ordered in 2021. Still not done.
HUD leadership told the Office of Single Family Asset Management and National Servicing Center to start issuing CWCOT repayment demands in 2021⧉. Monthly meeting minutes between the MCM and 's contracting officer representative, running from February 2021 through July 2024, show the topic raised again and again -- each time, the contractor was told was still working on it. 's interviews turned up a reason: prior leadership reportedly didn't want to pursue the demands for fear of pushback from the mortgage industry, worried it might disrupt a program lenders found useful. In early 2025, finally sent demand letters on a few test cases -- then paused the whole process again 'until directed otherwise.' In June 2025, emailed the contractor about formally restarting it.
What HUD is fixing, and what it isn't
issued seven recommendations, and HUD's Office of Single Family Housing agreed to six of them⧉ -- building out the demand process, documenting or collecting each dollar category, and tightening oversight of the MCM contractor going forward. On the seventh -- covering $2,456,294 in miscalculated property valuations -- declined to commit to demanding repayment for violations before July 24, 2025, invoking 'enforcement discretion' because 's own guidance to lenders, dating to a 2016 webinar, had been inconsistent; it agreed only to review the underlying claims. says it will submit a formal management decision, with action plans and target dates, after the audit report is finalized; says the CAFMV recommendation remains open and it will keep working with 's housing office through the standard audit-resolution process to close it and the rest out.
The takeaway
- The $10.5 million understates the problem. gave its contractor no pricing guidance for 231 appraisal-related findings on loans carrying $7.5 million in total claims, so those violations were never even billed -- the real improper-payment total is higher than the audited figure.
- The delay wasn't a technical failure -- it was a choice. cited system limitations for part of the four-year gap, but found no evidence anyone tried a manual workaround while waiting on the system fix, and interviewees said fear of industry pushback was a real factor in the inaction.
- The one recommendation won't commit to is the easiest kind to prove. A miscalculated valuation is an arithmetic check against 's own CAFMV system, not a documentation dispute like the property-preservation findings -- yet declined to commit to collecting the $2.46 million tied to it, agreeing only to review the claims; 's file on that recommendation stays open.
This audit covers only the CWCOT disposition path, one of several ways resolves defaulted loans -- it says nothing about improper payments elsewhere in claims processing. The $10,511,274 total is used twice in the report (the category breakdown in Figure 2 and the Schedule of Questioned Costs in Appendix A); a single mention in the Scope and Methodology section states the underlying universe represented $10,511,293, a $19 difference that reads as a drafting inconsistency in the report itself rather than a substantive discrepancy, and this piece uses the figure that appears in both the findings table and the formal questioned-costs schedule. None of the findings described here have been confirmed as fraud -- 's report characterizes them as 'improper' or 'potentially improper' payments under the Payment Integrity Information Act's definition, meaning cannot currently show the payment was owed in the amount paid, not that a lender knowingly overbilled.
Sources(2) ▾
- HUD Office of Inspector General (OIG), Office of Audit and Evaluation, HUD Did Not Pursue Repayment for Improper Payments on Claims Without Conveyance of Title (Report 2026-KC-0004) (2026-05-19) — The full 19-page audit report of 's Claims Without Conveyance of Title (CWCOT) program, including the Highlights summary, Results of Audit, Scope and Methodology, and management's full written response (Appendix B) and 's evaluation of it. Fetched directly from oversight.gov and converted with pdftotext -layout; hudoig.gov itself returns a Cloudflare bot-challenge (HTTP 403) on direct fetch, so oversight.gov's mirrored copy of the same PDF was used and sealed. oversight.gov · original document
- Oversight.gov (Council of the Inspectors General on Integrity and Efficiency), HUD Did Not Pursue Repayment for Improper Payments on Claims Without Conveyance of Title -- report record (2026-05-19) — The federal oversight-community's public catalog record for Report 2026-KC-0004, confirming the report number, issuing office ( ), and issue date, and hosting the PDF mirror used as the primary source. oversight.gov · original document
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When a homeowner with an -insured mortgage defaults and the lender forecloses, sometimes lets a third party buy the property at auction instead of the lender handing the property itself over to -- a disposition path called Claims Without Conveyance of Title (CWCOT). pays a contractor, the Mortgagee Compliance Manager (MCM), to check every one of those claims for overbilling. Between March 2023 and February 2025, that contractor flagged $10.5 million worth of improper payments. HUD's Inspector General⧉ found never demanded a cent of it back.